According to a new report from real estate data analytics company Black Knight, the refinance share of the U.S. mortgage market reached 18% in May, a low point since the company began tracking the metric in January 2018.
This comes even as Black Knight reported that mortgage interest rates have leveled off. According to the company’s May 2022 Originations Market Monitor report, the average fixed rate for a 30-year conforming loan dropped by 7 basis points from the previous month. After topping 5.5% in mid-May, rates declined by about 20 basis points and finished last month at 5.34%.
Origination activity, however, continues to decline even as loan pricing stabilizes. Rate locks across all loan types in May fell by 4.8% month over month and by 31.3% year over year. The well-documented shrinking of the refi market led this decline as locks for rate-and-term refis were down nearly 90% compared to May 2021. Even as U.S. homeowners continue to tap into record levels of equity, cash-out refi locks dropped by 42% over the past year.
“We’ve seen rate-and-term refinance activity essentially evaporate, and cash-out activity is now suffering as well,” said Scott Happ, president of Black Knight’s Optimal Blue technology division. “While there is volume pressure across the board due to rising rates, purchase volumes are holding up the best and are now driving 82% of all origination activity.”
One segment of the purchase loan market that is flourishing is government lending. Mortgage locks through the Federal Housing Administration (FHA) were up 285 basis points on an annualized basis while those through the U.S. Department of Veterans Affairs (VA) rose by 15 basis points. Together, FHA and VA rate locks accounted for nearly one in four originations in May, Black Knight reported.
The average size of $359,000 across all loan types was down $3,000 from April to May. This was likely a reflection of the increase in FHA and VA market share at the expense of agency lending, Black Knight noted. Across the nation’s top 20 metros areas, New York City led the way with 4.4% of all rate locks last month. Among these metros, only New York, Boston, Minneapolis and Charlotte saw their market shares grow from April to May.